A Layman's Guide to Transferring Physical Shares into Demat Account

A Layman’s Guide to Transferring Physical Shares into Demat Account

The whole world is going digital and the share trade market is no exception. Since the launch of the digital India campaign, the Indian government has been quite focused on making all the processes digital and going paper free. This not only saves the environment but also alleviates the issues associated with physical documents. However, one can still find queries like “how to convert my physical shares into demat?”. In this blog, we will be learning about transfer of physical shares into demat accounts in simple steps. 

Why is Share Transfer to Demat Account Needed?

Before starting the share transfer one must need to understand why this process is needed in the first place. The time when stock trading became famous in the 70s or 80s, there were only physical share certificates signifying the ownership of the shares. Also, stock trading involved exchanging share certificates physically. Physical share certificates were riskier to trade as there was a chance of them getting damaged due to many reasons. There was also a probability of them getting lost or stolen. Even stock trading required physical presence of the shareholder and thus, it was hard for people from far away places to take part in stock trading business.

To rectify these problems, the government and the market regulator came up with a digitised form of share. The digital shares were easy to trade without requiring the physical presence of the shareholder. The government also came up with a special demat account which was specifically an account meant for stocks. This was a major step in complete digitalisation of Indian stock market and trading business. Nowadays, it has become a norm for stockholders who are willing to trade their stocks online to convert their shares into digital form. The process is called Dematerialisation of Shares. 

Procedure for Share Transfer 

Shares which are present with stockholders in physical form are generally from their parents or grandparents. These can only be transferred to the demat account after going through the process of Dematerialization. As per a circular released by the Board (SEBI) in 2019, a share transfer request to the demat account of the shareholder cannot be processed if the shares are not in their dematerialised form. However, the request has the following exceptions to it. 

  • Transmission of Shares

Transmission of shares is fundamentally different from transfer of shares. This means that the whole ownership of the shares is being transferred to some other shareholder. For example, if you want to have shares of your parents in your own demat account, you must first get the shares transmitted to your own name. Thus, you will become the new owner of the shares. Post this, you can raise a request for conversion of physical shares to digitised or dematerialised form before getting them transferred to your own demat account. The ownership of the shares in such a process can be transferred via succession certificate or inheritance. 

  • Transposition of Securities

This process refers to the Interchanging or rearrangement of the order of shareholders. This process is also different from transfer as it only involves reordering of names. 

Steps of Transferring Shares to Demat Account

  • If a shareholder has physical share certificates of a company’s shares which are actively traded in their digitised form, then he has to convert it into dematerialised form. After this the shares must be transferred to a demat account to continue trading. So, the next step of the process is opening a demat account. 
  • Demat account Opening is a simple process that can be completed online. To open the same account in offline mode, an investor needs to meet the representative from a selected brokerage company. The representative will collect the KYC documents of the investor like aadhar card and PAN card. After opening such an account, an investor can transfer dematerialised shares to it.
  • The next step is to convert the existing physical shares to dematerialised form so that they can be transferred to the demat account. One DRF or Dematerialisation request form can be used to convert four physical share certificates to digital form. For more than four share certificates, an investor needs to file different sets of DRFs. The shareholders have to submit these DRF forms along with necessary KYC documents to their brokers. The broker sends all the relevant documents to the registrar or transfer agent of the company whose shares need conversion. The registrar converts those shares into equivalent digital shares of the same value as per market. After conversion, the same no. of shares will start reflecting in the demat account of the investor. 

Fee to Convert Physical Shares to Demat Form

The first cost that the investor needs to bear in this conversion process is the fee charged by the broker to convert the physical shares to digital form. Generally, broker companies tend to levy the annual charges of Rs. 200- 850 to attract more investors or for marketing purposes. Due to the same reason, the transaction charges for this process also differ from broker to broker. Thus, it is recommended that the investor checks out rates of different broker companies before starting the process of share conversion. Normal charges for conversion of physical shares range between 150-400 Rs. Per share certificate. The fee can vary with different brokers as they also provide some additional services along with conversion. The process software conversion can also be completed with the assistance of online consultants. As per the SEBI notification, the complete process of share conversion should be completed by the registrar within 21 days, unless it is going through some extreme circumstances. 

To Conclude…

Different brokers charge different amounts for conversion of physical shares and their transfer to the Demat account. They should preferably do some research before committing to any broker to get these services. With proper research, an investor can find a helpful broker company which can do the transfer process at a nominal cost. The process could prove to be lengthy for investors and thus they should not waste their own time in completing the steps of transfer. Having a trusted broker can go a long way in saving time and money for the company.

By | 2021-08-06T13:04:40+05:30 August 6th, 2021|Recovery of Bad Debt|0 Comments

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